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Press release from Business Wire

National Oilwell Varco Announces Third Quarter 2010 Results

Tuesday, October 26, 2010

National Oilwell Varco Announces Third Quarter 2010 Results07:00 EDT Tuesday, October 26, 2010 HOUSTON (Business Wire) -- National Oilwell Varco, Inc. (NYSE: NOV) today reported that for the third quarter ended September 30, 2010 it earned net income of $404 million, or $0.96 per fully diluted share, compared to second quarter ended June 30, 2010 net income of $401 million, or $0.96 per fully diluted share. Transaction charges for the third quarter of 2010 were $2 million pre-tax. Net income for the third quarter of 2010 excluding transaction charges was $406 million, or $0.97 per fully diluted share. This compares to second quarter of 2010 net income of $405 million, or $0.97 per fully diluted share, and third quarter 2009 net income of $396 million or $0.95 per fully diluted share, excluding transaction charges from both periods. The Company's revenues for the third quarter of 2010 were $3.01 billion, an increase of two percent from the second quarter of 2010 and a decrease of two percent from the third quarter of 2009. Operating profit for the third quarter of 2010 was $598 million or 19.9 percent of sales, excluding transaction charges. Year-over-year third quarter operating profit declined $20 million on $76 million lower revenue, resulting in operating profit flow-through (change in operating profit divided by the change in revenue) of 26 percent, excluding transaction and restructuring charges. Backlog for capital equipment orders for the Company's Rig Technology segment at September 30, 2010 was $4.87 billion, which was up slightly from the end of the second quarter of 2010. New orders during the quarter were $1.18 billion, reflecting a broad mix of the Company's products including new offshore and land rigs, workover rigs, cranes, and well-stimulation equipment, from domestic and international customers. Pete Miller, Chairman, President and CEO of National Oilwell Varco, remarked, “High oil and gas activity across North America and continued outstanding execution of equipment orders enabled the Company to achieve solid earnings and cash flow again this quarter. We are pleased that bookings into our capital equipment backlog exceeded shipments during the third quarter, driving backlog a little higher sequentially and signaling renewed interest in drilling equipment construction and refurbishment, and improving credit markets. We are pursuing new orders aggressively, and remain well-positioned to execute strategic internal growth and acquisition opportunities. “We expect to close our proposed acquisition of Advanced Production and Loading PLC, a subsidiary of BW Offshore Limited, during the fourth quarter. We believe this acquisition will help us expand our product offerings in the Floating Production, Storage and Offloading vessels (FPSO) market, which we consider to be the next phase of deepwater development in the oil and gas sector. FPSO's offer us a terrific opportunity to create value for our shareholders.” Rig Technology Third quarter revenues for the Rig Technology segment were $1.65 billion, essentially flat from the second quarter of 2010 and a decrease of 18 percent from the third quarter of 2009. Operating profit for this segment was $480 million, or 29.1 percent of sales. Revenue out of backlog for the segment decreased eight percent sequentially and decreased 28 percent year-over-year, but non-backlog revenue increased 17 percent sequentially and 23 percent year-over-year, reflecting higher demand for aftermarket parts, services and capital spares. Petroleum Services & Supplies Revenues for the third quarter of 2010 for the Petroleum Services & Supplies segment were $1.09 billion, up five percent compared to second quarter 2010 results and up 23 percent from the third quarter of 2009. Operating profit was $164 million, or 15.1 percent of revenue, up 19 percent from the second quarter of 2010. Operating profit flow-through was 46 percent sequentially and 38 percent from the third quarter of 2009 to the third quarter of 2010. Rising levels of rig activity in U.S. shale plays and seasonal recovery in Canada resulted in higher demand for products and services provided by the segment. Distribution Services The Distribution Services segment generated third quarter revenues of $424 million, which were up 16 percent from the second quarter of 2010 and were up 39 percent from the third quarter of 2009. Third quarter operating profit was $24 million or 5.7 percent of sales. Operating profit flow-through was 19 percent sequentially and 14 percent from the third quarter of 2009 to the third quarter of 2010. This segment benefited from sequential seasonal sales improvements in Canada, as well as strong sequential gains in U.S. operations on higher rig counts. The Company has scheduled a conference call for October 26, 2010, at 8:00 a.m. Central Time to discuss third quarter results. The call will be broadcast through the Investor Relations link on National Oilwell Varco's web site at www.nov.com, and a replay will be available on the site for thirty days following the conference. Participants may also join the conference call by dialing 1-800-446-1671 within North America or 1-847-413-3362 outside of North America five to ten minutes prior to the scheduled start time, and ask for the “National Oilwell Varco Earnings Conference Call.” National Oilwell Varco is a worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production operations, the provision of oilfield services, and supply chain integration services to the upstream oil and gas industry. Statements made in this press release that are forward-looking in nature are intended to be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and may involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to documents filed by National Oilwell Varco with the Securities and Exchange Commission, including the Annual Report on Form 10-K, which identify significant risk factors which could cause actual results to differ from those contained in the forward-looking statements.   NATIONAL OILWELL VARCO, INC.CONSOLIDATED BALANCE SHEETS(In millions, except share data)     September 30, December 31, 2010 2009 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,070 $ 2,622 Receivables, net 2,408 2,187 Inventories, net 3,562 3,490 Costs in excess of billings 769 740 Deferred income taxes 232 290 Prepaid and other current assets   285   269 Total current assets 10,326 9,598   Property, plant and equipment, net 1,808 1,836 Deferred income taxes 269 92 Goodwill 5,525 5,489 Intangibles, net 3,877 4,052 Investment in unconsolidated affiliate 365 393 Other assets   61   72 $ 22,231 $ 21,532   LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable $ 585 $ 584 Accrued liabilities 2,289 2,267 Billings in excess of costs 293 1,090 Current portion of long-term debt and short-term borrowings 354 7 Accrued income taxes   351   226 Total current liabilities 3,872 4,174   Long-term debt 516 876 Deferred income taxes 2,197 2,091 Other liabilities   242   163 Total liabilities   6,827   7,304   Commitments and contingencies   Stockholders' equity: Common stock – par value $.01; 419,167,762 and 418,451,731 shares issued and outstanding at September 30, 2010 and December 31, 2009 4 4 Additional paid-in capital 8,267 8,214 Accumulated other comprehensive income 109 90 Retained earnings   6,906   5,805 Total National Oilwell Varco stockholders' equity 15,286 14,113 Noncontrolling interests   118   115 Total stockholders' equity   15,404   14,228 $ 22,231 $ 21,532       NATIONAL OILWELL VARCO, INC.CONSOLIDATED STATEMENTS OF INCOME (Unaudited)(In millions, except per share data)   Three Months Ended Nine Months Ended September 30,   June 30, September 30,   2010       2009     2010     2010       2009   Revenue: Rig technology $ 1,650 $ 2,000 $ 1,672 $ 5,208 $ 6,116 Petroleum services and supplies 1,089 882 1,033 3,045 2,809 Distribution services 424 306 365 1,123 1,019 Eliminations   (152 )   (101 )   (129 )   (392 )   (366 ) Total revenue 3,011 3,087 2,941 8,984 9,578 Gross profit 947 897 932 2,852 2,813 Gross profit % 31.5 % 29.1 % 31.7 % 31.7 % 29.4 % Selling, general, and administrative 349 279 338 1,012 886 Intangible asset impairment -- -- -- -- 147 Transaction, devaluation and voluntary retirement costs   2     17     4     44     73   Operating profit 596 601 590 1,796 1,707 Interest and financial costs (12 ) (14 ) (13 ) (38 ) (40 ) Interest income 4 4 3 9 8 Equity income in unconsolidated affiliate 8 1 8 22 45 Other income (expense), net   (23 )   (13 )   (3 )   (15 )   (87 ) Income before income taxes 573 579 585 1,774 1,633 Provision for income taxes   169     192     186     552     551   Net income 404 387 399 1,222 1,082   Net income (loss) attributable to noncontrolling interests   --     2     (2 )   (5 )   7   Net income attributable to Company $ 404   $ 385   $ 401   $ 1,227   $ 1,075     Net income attributable to Company per share:   Basic $ 0.97   $ 0.93   $ 0.96   $ 2.94   $ 2.58     Diluted $ 0.96   $ 0.92   $ 0.96   $ 2.93   $ 2.58     Weighted average shares outstanding:   Basic   417     416     417     417     416     Diluted   419     418     419     419     417         NATIONAL OILWELL VARCO, INC.OPERATING PROFIT –  AS ADJUSTED SUPPLEMENTAL SCHEDULE (Unaudited)(In millions)   Three Months Ended Nine Months Ended September 30,   June 30, September 30,   2010       2009     2010     2010       2009     Revenue: Rig technology $ 1,650 $ 2,000 $ 1,672 $ 5,208 $ 6,116 Petroleum services and supplies 1,089 882 1,033 3,045 2,809 Distribution services 424 306 365 1,123 1,019 Eliminations   (152 )   (101 )   (129 )   (392 )   (366 ) Total revenue $ 3,011   $ 3,087   $ 2,941   $ 8,984   $ 9,578     Operating profit: Rig technology $ 480 $ 579 $ 509 $ 1,570 $ 1,721 Petroleum services and supplies 164 86 138 415 346 Distribution services 24 7 13 48 42 Unallocated expenses and eliminations   (70 )   (54 )   (66 )   (193 )   (182 ) Total operating profit (before intangibleasset impairment and transaction,devaluation and voluntary retirementcosts) $ 598   $ 618   $ 594   $ 1,840   $ 1,927   Operating profit %: Rig technology 29.1 % 29.0 % 30.4 % 30.1 % 28.1 % Petroleum services and supplies 15.1 % 9.8 % 13.4 % 13.6 % 12.3 % Distribution services 5.7 % 2.3 % 3.6 % 4.3 % 4.1 % Other unallocated   --     --     --     --     --     Total operating profit % (beforeintangible asset impairment andtransaction, devaluation and voluntaryretirement costs)   19.9 %   20.0 %   20.2 %   20.5 %   20.1 %       NATIONAL OILWELL VARCO, INC.AS ADJUSTED EBITDA RECONCILIATION EXCLUDING INTANGIBLE ASSET IMPAIRMENT AND TRANSACTION,DEVALUATION AND VOLUNTARY RETIREMENT COSTS (Unaudited)(In millions)   Three Months Ended Nine Months Ended September 30,   June 30, September 30,   2010     2009   2010   2010     2009   Reconciliation of EBITDA (Note 1): GAAP net income attributable to Company $ 404 $ 385 $ 401 $ 1,227 $ 1,075 Provision for income taxes 169 192 186 552 551 Interest expense 12 14 13 38 40 Depreciation and amortization 127 126 124 378 364 Intangible asset impairment -- -- -- -- 147 Transaction, devaluation and voluntary retirement costs   2   17   4   44   73 EBITDA (Note 1) $ 714 $ 734 $ 728 $ 2,239 $ 2,250   Note 1: EBITDA means earnings before interest, taxes, depreciation, amortization, intangible asset impairment, transaction, devaluation and voluntary retirement costs, and is a non-GAAP measurement. Management uses EBITDA because it believes it provides useful supplemental information regarding the Company's ongoing economic performance and, therefore, uses this financial measure internally to evaluate and manage the Company's operations. The Company has chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results and as a means to emphasize the results of ongoing operations. National Oilwell Varco, Inc.Clay Williams, 713-346-7606Clay.Williams@nov.com